Canada’s R&D spending increases but continues to lag other nations: Statistics Canada

Overall R&D expenditures in Canada reached $46.9 billion in 2021, up $4 billion (9.3 per cent) from 2020, according to a report by Statistics Canada. This increase marks the largest growth in year-over-year spending that Canada has seen, StatsCan said.

More than 90 per cent of the R&D expenditures occurred within four provinces:

• Ontario (+$1.7 billion to $21.5 billion)
• Quebec (+$849 million to $11.6 billion)
• British Columbia (+$595 million to $6 billion)
• Alberta (+$553 million to $4.3 billion).

Early estimates show that national R&D expenditures increased in 2022, albeit at a slower pace, to $48.2 billion (+$1.2 billion). “The business enterprise sector will have driven this growth,” StatsCan said. In 2023, spending is anticipated to increase to $49.1 billion (+$994.0 million).

Spending rises across most funding sectors

The business enterprise sector had the largest effect on R&D spending in 2021, with spending rising $2.6 billion to $21.8 billion. This sector’s effect on overall spending was heightened because of its weight (46.4 per cent) when compared with other sectors.

The growth in business R&D spending was mainly attributable to higher spending on software (+59.5 per cent), reflecting the use of digital tools for R&D. This growth may have been accelerated by lockdowns in 2021 to reduce the spread of COVID-19.

The foreign sector, the second-largest contributing sector, rebounded from a slight decline in 2020 (-$30 million) to an increase of $762 million, to $4.9 billion in 2021.

Additional sectors that also saw growth included higher education (+$459 million to $8.4 billion) and private non-profit (+$410 million to $20 billion).

Following a year of record-level R&D funding, the federal government decreased its spending by $554 million to $7.8 billion in 2021. This decline was a result of decreased in-house spending on R&D.

Businesses and higher education institutions are key R&D performers

In terms of performing R&D, which refers to the actual R&D work carried out, growth in 2021 was mainly attributable to the business enterprise sector (+$3.6 billion to $27.3 billion) and the higher education sector (+$715 million to $16.6 billion). Together, these sectors accounted for 93.6 per cent of R&D performed in 2021.

Offsetting this increase was a decrease in R&D performed by the federal government (-406 million to $2.4 billion).

R&D spending by type of science

R&D spending can be broadly categorized into the natural and social sciences. In 2021, spending in the natural sciences and engineering category increased $3.9 billion to $42.5 billion. This is the largest percentage increase in this category since 2001 and is mainly due to increased spending by the business enterprise sector.

R&D spending in the social sciences, humanities and the arts rose $92 million to $4.4 billion in 2021. This rise was the result of additional spending by the higher education sector, which accounted for 61.6 per cent of total social sciences spending.

How does Canada stack up against the world?

Canada’s R&D intensity (the nominal share of gross R&D expenditures as a percentage of gross domestic product) decreased to 1.86 in 2021, down from the 1.93 ratio recorded in 2020 despite increased spending.

This reflects the fact that, in 2021, the Canadian economy accelerated at a faster pace (GDP: +13.4 per cent at current prices; +5.4 per cent at 2017 constant prices) than R&D spending  (GERD: +9.3 per cent at current prices; +1.5 per cent at 2017 constant prices).

Compared with other member countries, Canada continued to rank below the G7 average in 2021. Within the OECD, Canada fell two spots to 19th position.

Corporate spending is “on a roll”

The rise in business R&D spending documented by Statistics Canada is also captured, within individual corporations, in a report by Toronto-based Research Infosource Inc. 

Canada’s Top 100 Corporate R&D Spenders posted $16.05 billion in combined R&D spending in Fiscal 2022, according to the report. This was a significant increase of 20.2 per cent over Fiscal 2021.

R&D spending increased at 81 companies and declined at 19. Combined revenue of 94 of the Top 100 that disclosed their data was about $403.6 billion. This produced an overall R&D intensity (R&D spending as a percentage of revenue) of 3.5 per cent.

In Fiscal 2022, the leading corporate R&D spender was Shopify Inc. which devoted $1.96 billion to R&D (up 82.7 per cent), followed by Constellation Software Inc. ($1.31 billion, up 36.2 per cent) and Magna International Inc. ($844.5 million, up 6.3 per cent).

TELUS Corporation Inc. landed in 4^th spot with $819 million of R&D spending (up 2.5 per cent), and AMD Canada rounded out the top five R&D spenders with $698.8 million (up 45.6 per cent).

Regional Performance

In Fiscal 2022, 46 companies headquartered in Ontario reported combined R&D spending of $9.16 billion, representing 57 per cent of the Top 100 total, followed by 25 Quebec-based companies ($4.02 billion, 25 per cent of the total) and 27 firms located in Western Canada ($2.82 billion, 18 per cent of the total).

Overall R&D growth jumped by a combined rate of 23.0 per cent in Ontario, 17.8 per cent in Western Canada and 15.7 per cent in Quebec.

$100 Million Club

Thirty-one Top 100 firms each reported R&D spending in excess of $100 million in Fiscal 2022, thus qualifying for membership in Research Infosource’s $100 Million Club. In Fiscal 2022, total Club members’ R&D spending was $13.48 billion, accounting for 84 per cent of total Top 100 R&D spending.

R&D Spenders Tiers

Grouping the Top 100 companies into three R&D spending tiers (Tier 1 = $100 million or more of R&D spending; Tier 2 = $30 million to $99.9 million; Tier 3 = less than $30 million), three firms emerged as the respective tier leaders:

• Tier 1 – Shopify Inc. ($1.96 billion)
• Tier 2 – Kinaxis Inc. ($96.5 million)
• Tier 3 – Neo Performance Material Inc. ($27.1 million).

R&D Spending Growth

The leading firms in Fiscal 2022 for growth in R&D spending in Tier 1 were Lightspeed Commerce Inc. (129.6 per cent), Shopify Inc. (82.7 per cent) and AbCellera Biologics Inc. (80.5 per cent).

The Tier 2 leaders were Absolute Software Corporation (99.8 per cent), Coveo Solutions Inc. (94.3 per cent) and Thales Canada Inc. (88.5 per cent).

Tier 3 R&D growth leaders were: ProMIS Neurosciences Inc. (231.8 per cent), Semova Corp. (205.1 per cent) and NervGen Pharma Corp. (141.7 per cent).

R&D Intensity

Combined Top 100 R&D intensity (R&D spending as a percentage of revenue) was 3.5 per cent in Fiscal 2022. Among the 94 firms for which complete data were available, a number posted very strong gains in R&D intensity.

In Tier 1, the leading firms were: Xenon Pharmaceuticals Inc. (1,121.2 per cent), Ballard Power Systems Inc. (114.5 per cent) and Repare Therapeutics Inc. (91.4 per cent).

Tier 2 leaders were: Milestone Pharmaceuticals Inc. (805.6 per cent), Thinkific Labs Inc. (53.3 per cent) and Theratechnologies Inc. (46.5 per cent).

Heading Tier 3 were: Taiga Motors Corporation (319.6 per cent), AEterna Zentaris Inc. (221.7 per cent) and Blackline Safety Corp. (33.8 per cent).

Industry Performance

In Fiscal 2022, a selection of industry sectors posted the most R&D spending:

• 23 companies in the Software & Computer Services sector accounted for 36 per cent of total Top 100 R&D spending
• 36 Pharmaceuticals/Biotechnology firms accounted for a combined 16 per cent of the Top 100 R&D spending
• five Telecommunications Services companies accounted for 12 per cent of the Top 100 total
• five Aerospace & Defence companies accounted for seven per cent of the total
• three Automotive companies accounted for six per cent of the total
• five Energy/Oil & Gas companies and five companies in the Comm/Telecom Equipment sector each respectively accounted for five per cent of all R&D spending total in Fiscal 2022.

R&D spending growth among these industry sectors was strongest in Fiscal 2022:

• Software & Computer Services (up 36.5 per cent)
• Energy/Oil & Gas (up 19.9 per cent)
• Aerospace & Defence (up 17.8 per cent)
• Pharmaceuticals/Biotechnology (up 17.2 per cent)
• Comm/Telecom Equipment (up 14.3 per cent).

Bucking the Trend

Normally, Research Infosource expects R&D spending trends to broadly align with revenue trends. In Fiscal 2022, several industry sectors performed counter to expectations:

The Telecommunications Services sector experienced a combined increase of revenue of 4.8 per cent, but posted an overall drop in R&D spending of -6.3 per cent.

The Energy/Oil & Gas sector posted revenue gains of 44.4 per cent in Fiscal 2022, while posting a combined R&D spending increase of 19.9 per cent.

The Comm/Telecom Equipment sector had a combined revenue gain of 31.5 per cent and expanded its R&D spending by less than half, at 14.3 per cent.

The Software & Computer Services sector had revenue gains of 13.8 per cent, while posting a much higher combined R&D spending increase of 36.5 per cent

The Pharmaceutical/Biotechnology sector had revenue gains of 9.1 per cent, while posting a 17.2-per-cent increase in R&D spending in Fiscal 2022.

Will the increase in corporate R&D continue?

“Corporate R&D spending appears to be on a roll,” Research Infosource said. “Following a 10.9-per-cent gain in Fiscal 2021, the Top 100 Corporate R&D Spenders lodged an impressive 20.2-per-cent increase in their combined R&D spending in Fiscal 2022, to $16.05 billion.” (Note that the composition of the Top 100 does change from year to year.)

The Fiscal 2022 results run counter to expectations, according to Research Infosource. “Clearly, economic conditions did not deteriorate sufficiently to hobble R&D spending. Rather, the opposite was the case – 58 of the Top 100 reported triple- and double-digit increases in R&D spending in Fiscal 2022.”

A big question, Research Infosource noted, is whether the “torrid” Fiscal 2022 results can continue, against a backdrop of rising interest rates and a cloudy political economy.

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